Chinese infiltration or Huawei Hoo-ha?

The UK government is in a state about whether Chinese tech giant Huawei should participate in the roll-out of the UK’s 5G network. The argument has now claimed the scalp of the UK Defence Secretary. This torrid affair reveals much, writes Victor Hill.

Huawei: for and against

Modesty aside, I am rarely invited to attend meetings of the UK National Security Council (NSC) much as I believe my advice would be useful – partly no doubt because I have always refused to sign the Official Secrets Act – telling Sir Humphrey to run it by my lawyer… And I must admit I was not present at the NSC meeting on 23 April when our illustrious Prime Minister determined that the Chinese tech behemoth Huawei (SHE:002502) should be allowed to contribute to the “non-core” elements of the nation’s 5G network infrastructure – much to the chagrin of our closest allies who make up the Five Eyes…

Just prior to that fateful confabulation, I did, however, happen to overhear a conversation between two of the country’s most senior civil servants while buying a vegan sausage roll at the Westminster underground outlet of Gregg’s (LON:GRG). (One runs into such fascinating people there.) For reasons that readers will understand I have chosen to attribute pseudonyms to the two great men in question.

Sir Humphrey Sinophile:

We really can’t afford to upset the Chinese, Richard. They’ll displace France as our fourth largest export market next year, or the year after. All kinds of undesirables will be involved in the roll-out of the next phase of our telecommunications infrastructure and Huawei is not the only worry. Our American friends are just trying to protect their own. They’ll make a fuss but they’re not going to cut us out of the intelligence loop. In any case, we have to watch the bottom line. Huawei’s equipment is about 25 percent cheaper than its American rivals’. Moreover, we’ll just confine Huawei to the dumb bits of the network like antennae and exclude it from the inner core. Much of the existing 4G network is already reliant on Huawei’s kit, so what have we got to lose?

Sir Richard Rightstuff:

My dear Simon, you’ve completely lost the plot. How do you think Huawei has been able to come out of nowhere to become one of the most dominant tech players on the globe with its sales up by 500 percent in nine years? The firm is hand-in-glove with the Chinese Communist Party. Its founder,Ren Zhengfei, worked in the Chinese military before emerging as an entrepreneur. Ren’s daughter, Meng Wanzhou, who is the Chief Financial Officer at Huawei, has been accused by the Americans of espionage. In any case, Chinese law stipulates that all Chinese companies must cooperate with state security services. China is rapidly becoming a surveillance state with Huawei’s help – just look at how they are using apps to track people in Xinjiang[i]. CCTV cameras manufactured by another “private” Chinese company, Hangzhou (SHE: 002415), have been found to have wide-open Wi-Fi penetrability. You might save money by going with Huawei but our American friends will cut up rough…

To leak or not to leak?

The putative leak which followed that fateful meeting of the NSC was not in any way related to the argument encapsulated in the exchange between the two mandarins. Rather, somebody – Mr Williamson, the Defence Secretary, according to the kangaroo court, though he denies it – told the Daily Telegraph not the details of the what the intelligence services were thinking but the broad thrust of policy which is that the PM favours allowing Huawei in.

This was enough to unite the mandarinate of the civil service under the Cabinet Secretary, Sir Mark Sedwill, a cohort of retired notables led by Lord (Gus) O’Donnell and the entire Labour Party front bench in a frenzy of righteous condemnation. Whoever had told the Daily Telegraph the outcome of that meeting of the inner sanctum of state security, had violated the Official Secrets Act and therefore committed a criminal offence.

In the hierarchy of sin, it now seems, a mere cabinet minister who briefs journalists about what was said in cabinet is guilty of a venal peccadillo – something that we have all done in our time; but someone who lets the cat out of the bag on the foremost policy issue of the day is guilty of a mortal, nay unforgivable, sin. Such a person should no doubt be burnt at the stake (since Baroness Chakrabarti would no doubt argue that Labour’s conventional opposition to capital punishment be suspended given the enormity of the crime).

A committee of notables was charged with the task of finding the culprit and the trail they followed led directly to the cage of Mr Williamson’s pet tarantula. Mr Williamson was immediately defenestrated and replaced by Ms Penny Mordaunt MP, a former magician’s assistant (and, to be fair, a Royal Navy reservist). As I write, Mr Williamson is protesting his innocence and calling for a full police enquiry which he says will exonerate him – something Mrs May apparently does not want. So Mrs May has yet another enemy on the back benches. If Mr Williamson were able to prove his innocence (unlikely, in my view) then pressure will grow for Cabinet Secretary Sir Mark Sedwill to resign – and the Prime Minister’s position could also become untenable (though you will have heard that before).

With Ms Mordaunt’s promotion to Defence Secretary and the appointment of Rory Stewart MP to replace her at the helm of the Department for Overseas Development (DIFID) the balance of power within the cabinet as between soft and hard Brexit has shifted tangibly in favour of the softies. As Sir John Redwood wrote in his online diary yesterday (02 May): Whatever the truth of this leak it is quite obvious the system is unfair. There has been no leak enquiry when the leaker could have been a Remain supporting Cabinet member[ii].


The Foreign Secretary, Mr Hunt (who has a Chinese wife) voiced concerns about Huawei’s involvement last weekend. Mr Hunt was present at the NSC meeting in question. Tobias Ellwood MP, a junior defence minister, also called for an “urgent debate” about growing Chinese influence. The fact is that a government wherein there is open scorn and resentment of a Prime Minister whom everyone expects to depart the stage at the soonest opportunity, and where the greatest political issue of the era has been parked like a bomb in a sandbox, it is difficult to formulate any key strategic decisions in a way that will engender consensus.

Meanwhile, the drama surrounding the leak enquiry and its first main victim has occluded (as ever) any adult discussion about whether a corporation which might under certain circumstances become an agency of the Chinese state should be allowed to penetrate the digital nervous system of the UK.

The 5G revolution: the internet of things

Within five to ten years everything – I mean everything from your toaster to your car – will be connected to the internet and will be controlled accordingly. Intelligent traffic lights will know when to change because they will know exactly how many cars are heading in each direction. Autonomous or self-driving taxis (powered by electricity, of course) will be purring around and will know exactly when to pick you up from the railway station stroke supermarket stroke pub. All this will be facilitated by the 5G infrastructure which is currently at the planning stage.

The nightmare is that, in any future conflict, the Chinese state might have the power to turn off the UK’s communications systems or its power generation or indeed the entire internet at the proverbial flick of a switch. But is that realistic? It depends on whom you speak to.

Forcing the likes of BT (LON:BT) and Vodafone (LON:VOD) to strip all Huawei equipment out of their networks would cost them billions and would delay the roll-out of 5G for years – with negative economic consequences. But it could be done. Ericsson (NASDAQ:ERIC), Nokia (NYSE:NOK), Ciena (NYSE:CIEN) and Cisco Systems (NASDAQ:CSCO) all manufacture 5G equipment which could substitute Huawei’s.

The first countries to develop and activate the new 5G infrastructure will accrue huge economic advantages. America’s lead in 4G technology facilitated the rise of Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) and others. Now America’s technological lead over China has been eroded – which is partly why the American intelligence services are so exercised by the issue.

We are told that GCHQ dismantles and dissects all Huawei products. Some insiders have claimed that Huawei’s equipment is not so much sinister as “shoddy” – meaning wide open to security breaches. GCHQ apparently thinks that the risks posed by Huawei – even if it is a frog-marching agency of the Chinese state – are manageable. Huawei actually employs an all-British monitoring team in its Cyber Security Evaluation Centre. Essentially, Mrs May approved Huawei’s role because the spooks had told her it would be okay. Her failure, as usual, was to communicate that essential fact to the public at large.

Consequences

On Monday (29 April) Robert Strayer, the deputy assistant secretary for Cyber Security at the US State Department, said that America would have to reassess its intelligence-sharing relationship with any country which equipped their 5G network with products supplied by untrusted vendors. He warned that Chinese authorities could order Huawei at any time to undermine internet security, to harvest data and to distribute cyber-attacks in order to disrupt critical infrastructure.

Of course Huawei is keen to win contacts for the development of 5G in the UK because that would give it the leverage to go after similar contracts in less developed countries. China also sees a UK with its free-trade ethos detached from the EU as a natural trading partner – whether we like that or not. According to Mr Liu, the Chinese ambassador to the UK, Britain has three questions to answer right now. First: will the UK choose to make key strategic decisions independently? Second: will the UK remain an economy open to free trade and investment? Third (this one slightly menacing): will the UK choose win-win cooperation or not? (As if defying China always means lose-lose.)

The US has already banned Huawei outright from supplying equipment to government-run networks. Australia has passed an equivalent executive order. But is the UK being dragged into an unnecessary argument caused by the Trump administration’s paranoia about the rise of China? Especially given the Chinese push towards their Belt and Road initiative – which Italy and now Switzerland have joined. That is what the Chinese ambassador thinks – as he unhelpfully explained in his article in last week’s Sunday Telegraph (28 April).


Let us remember that the USA is still in an unresolved trade war with China in which the EU and the UK have perforce remained neutral. Moreover, the Chinese leadership is now very nervous about the global slowdown and its possible impact on the Chinese debt mountain – despite the bluster. Global trade slumped by 1.8 percent in Q4 2018[iii]. China is actually becoming a net importer of capital – the implications of which I shall unpack shortly.

But if China continues to grow at around 6 percent and the US at about 2 percent then China will overtake the US as the world’s largest economy in 2030. (Some observers believe that President Xi abolished the ten-year term limit on his presidency because he wants to be head of state at that remarkable moment).

The real question we have to ask ourselves is: in the unfortunate and fearful event of a conflict between the US and China – which side would we be on? Or, to put the question the other way around: in such an event, which of America’s allies would China assume to be its enemy? Possibly the island state which trashed the dragon in the Opium War, capturing Hong Kong (1841) and then burnt the imperial summer palace to the ground (with French help in 1860)?

And would China allow Cisco or Ericsson to build its own 5G infrastructure? Silly question.

[i]For more on this, see: https://www.businessinsider.com.au/china-ijop-app-classifies-muslims-into-36-personality-types-xinjiang-uighurs-human-rights-watch-2019-5?utm_source=Business+Insider+Australia+-+10+things+you+need+to+know+in+the+morning+in+Australia&utm_campaign=3dee45e0c4-businessinsider_2019_05_03&utm_medium=email&utm_term=0_8a990bd96b-3dee45e0c4-280737397

[ii]See: http://johnredwoodsdiary.com/2019/05/02/mrs-may-strengthens-remain-forces-in-cabinet/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+JohnRedwoodsDiary+%28John+Redwood%27s+Diary%29

[iii]According to CPB Netherlands Bureau for Economic Policy Analysis.